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Select all of the following that are true regarding hedging (4) Buying an insurance policy is an example of hedging Hedging is like arbitrage in that it operates across markets Hedging is unlike arbitrage since arbitrage acts in different markets for the same underlying good whereas hedging acts in markets with inversely correlated outcomes, ideally Arbitrage makes hedging more effective by making market prices closer to fundamental value Arbitrage cannot exist without hedging. QUESTION 9 Select all that are true regarding trade and x : (1) Importers and exporters use currency options and futures to hedge supply chain risk Arbitrage in international goods markets usually uses, in part, spot market fx transactions Currency swaps can be used to buy foreign goods now and in the future Currency forwards can be used in place of currency options and futures to hedge fx risks for importers and exporters but they are not exchange traded QUESTION 10 The differences between purchasing power parity (PPP) and covered interest rate parity (CIRP) include: (3) CIRP is easier to achieve since it relies on high fungible assets (investments) rather than goods PPP has less of an fx effect (movement) since it is a one way transaction whereas CIRP involves "round-trip" (forwardffutures and spot) market transactions, despite the greater inelasticity in the CA. PPP is easier to achieve since it does not rely on future fx transactions CIRP drives both goods and financial markets closer to parity whereas PPP only affects goods markets